Reuters, Feb. 8, 2012
Mark Zuckerberg and the case for a wealth tax
by Felix Salmon
Mr. Salmon opines:
...
Zuckerberg’s $2 billion tax bill is only coming about because of a quirk in
the way his Facebook equity has been structured: on top of his 414 million
shares of Facebook, he also owns 120 million options. Zuckerberg’s shares
are generating no tax bill at all; it’s only the fact that he’s exercising
the options which is giving him $5 billion or so of taxable income, for this
year only.
... If Mr. Zuckerberg never sells his shares,
he can avoid all income tax and then, on his death, pass on his shares to
his heirs.
...
Personally, I think it would be much better idea if we simply implemented a
small wealth tax, on top of income tax, for the very wealthy: last year I proposed that
any wealth over $5 million should be taxed, annually, at a 1% rate. For
someone with $5.7 million in wealth — that’s the top 0.1%
2-4-8 Response
Thank you Mr. Salmon and thank you Reuters for putting
a wealth tax on the table. I believe that bold reform will not happen unless
the media accurately reports that income, sales and even net wealth can be
part of an expanded tax base to produce the same amount of revenue in a much
better way. [I am opposed to using a wealth tax as a surtax only on the
well-to-do].
At the risk of oversimplification, try to contrast a
30% income tax (the Buffet Rule rate) with an 8% income tax combined with a
2% wealth tax for each of the next 11 years. The latter combined tax would
permit an individual to keep 22% more salary each year and tax another 2% of
the amount not consumed for the next 11 years. If one saved the 22% for 3
years it would be like having a year’s take home in the bank on top of what
might have otherwise been saved under a 30% flat tax rate (conservatively
assuming the 2% wealth tax was offset by 4% investment interest).
In August of 2006, I made the following suggestion to
the President’s Advisory Panel on Tax Reform: tax Net Individual Wealth at
2%, Consumption/Sales at 4% and Income at 8%. The exact same rates apply to
the rich and poor. There are no different tax brackets, credits, and no
favoritism. The three taxes would yield about $2.6 trillion per year
(slightly [about $400 billion] more than the current combination of Income,
Social Security, gasoline and other federal taxes and fees).
It is also important to consider that deductions such
as mortgage interest are not needed because the homeowner would get the
benefit of deducting the mortgage principal in computing net wealth. A
similar benefit would apply to those with credit card and student loan debt.
Over the years, as debt is paid off and wealth was accumulated, the taxes
paid would obviously be a little more. The blend of taxes, taken together,
is progressive even thought the rates are the same for all.
It is hard to imagine anyone that wouldn’t welcome a 2%
tax on net wealth and a small 4% sales tax, in exchange for drastically
reduced 8% individual income tax rate. Even the “fair and balanced†Bill
O’Reilly (a/k/a the Factor) supports a national sales tax (of 3%) as a
necessary component of tax reform. The concurrent elimination of social
security, capital gains, estate and gift taxes; and a significant reduction
of the corporate income tax rate to 8% should guarantee near universal
support from social liberals and business conservatives alike (he defiantly
stated as he waited for someone to find a flaw in the plan rather than the
obvious lack of political will).
The 2-4-8 Tax Blend expands the tax base to achieve the
lowest possible rates (while yielding about the same government revenue).
Upward mobility is encouraged by lowering the tax burden on earned income. A
corporate tax rate of 8% should also be a very big plus for job creation and
the economy.
Eugene Patrick Devany, JD, MPA
http://www.TaxNetWealth.com
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